i'm guy johnson. .elcome to bloomberg markets vonnie: stocks in the u.s. are lower to start the holiday shortened trading week. we also have new housing data. the prior months of october coming in at 68%. a little bit of weakness for the housing market. we have had that for many months for lots of different reasons. this miss for the housing index for the month of up over consistent with that weakness we have had. as for the major averages, not a lot of influence. looking at decent declines. the dow down .4%, the nasdaq underperforming, down 1.1% in a

.orrection, down more than 10% despite the losses we have for the major averages being driven by jitters around technology, we do have bonds selling off. stocks certainly risk off. behind that, apple and the apple suppliers. let's take a look at the apple board we have. apple down 2.8 percent, nearly in a bear market from its all-time high in early october. this is weighing on the other apple suppliers. the point of the weakness for apple, a continuation of the theme that iphone demand might be falling off. the wall street journal reporting that apple has cut production orders for its three new iphone orders. this comes after reports of weakness for apple suppliers as well as apple itself giving a disappointed guide to the holiday quarter. investors selling off the shares , and is happening during the all-time high in october. a look at the technicals on

apple. it may suggest more weaknesses to come. those are the long-term buyers, the investors who like apple despite the near-term volatility . we see back in february and may that those buyers stepped up and supported apple. we also see the momentum indicator had come off the load. that in the summer upper going up and away. the $1 trillion market cap above the all-time high. a bear market down 20% from the all-time high, back below the 200 day moving average. that may suggest more weakness for apple. if there is a weekly closing below that 200 today average, it will suggest longtime buyers are nervous as seems to happen every three or so years for apple. as for oil, let's take a look at what is happening there. volatility on the day. the taking ar in nosedive, down 2.4% as russia holding off on any production cuts even though saudi arabia is calling for those cuts.

oil lower on the possibility that supply will remain where it is now as opposed to being reduced. and then let's take a look at bitcoin, down eight days in a row. plunging, down 22%. a bear market in a short period level, wellhe 5100 below the important level of 6000. a risk off picture, even though bonds are selling off. guy: feels like that risk off story over here. let's take a look at the stoxx 600. the stoxx 600 is only down by .2%. i will show you the volume. what is happening with the price of crude. we all seeing the oil and gas sector is the underperforming sector. money is rotating into some of the defensive sectors. some of the insurance stocks trading higher. that is the picture in europe.

no clear sense of direction evolving. the eurosterling evolving, no take on's from the brexit story. 20 to think about. today, relatively quiet. andleader of the government the leader of the opposition speaking at the cbi of and. a reasonable stables tory. -- a reasonable stable story. eurosterling trading up, not very much. the big story today from the car sector in europe and asia has been run no. this -- has been renault. was down a little more than that earlier. this has an interesting effect on the auto sector today. i want to wrap things up with a look at what is happening with the volume. what we are seeing is a shortened holiday week in the united states, as a result of

which, volume on monday is subpar. we are 20% below the average of the last 30 days. relatively light volume day, that confirms we not getting decent signals coming out of the market. this angle continues to be the main story. surprised of elements involving the nissan chairman carlos ghosn , at the epicenter of the action we have been seeing. carlos ghosn best known for turning around nissan. .e was an icon in japan the japanese company is preparing to dismiss carlos ghosn after his arrest in tokyo for violations of financial law. nissan's ceo addressed the crisis earlier. >> i am unable to talk about details of the contents, but needless to say this cannot be tolerated by the company. thisxperts judge that

gives them enough reason for a dismissal. guy: let's get analysis on this now. and analysis with north georgia bank joins us now from hanover in germany. the stock getting knocked down. we are seeing the nissan story looking negative. the market seems to be reacting to fears we will not see the consolidation of the alliance etc. r, renault, nissan, this is one of the projects carlos ghosn was pushing forward. do you think that still happens? >> i can only hope. it is very important to bring this alliance of mitsubishi and ,issan and renault to a close maybe finally to one company. depends on the japanese side and on the 50% stake of the french government in no. if the french government would

sell it, you could make one company. most of the things depend on mr. ghosn. he cannot stay as chairman of nissan and maybe also to leave his position in renault. french president macron has said he will be vigilant about the stability of renault/nissan. is there a potential for renault to become on stable should ghosn have to leave the company? frank: we see only allegations now. japan and thed in alliance of nissan and renault is -- they depend on him and i do not know what happens if he stays for some weeks in prison.

to leadmost impossible the company anymore, even if he will become free from prison. audi they were in prison as well -- and all the got a new ceo, maybe the same thing will happen with renault? this is aw much of personal crisis for mr. ghosn and how much does this impact the companies he has been leading. he was planning on stepping down before 2020 -- before 2020 to. frank: he had wanted to step down. he was already 64 years old. he could make it three or four years and then he would give his jobs to her predecessor. -- to a predecessor. -- it is very

important for the company to have him, they had him in the past. i think nissan and run no now these a new man -- nissan and renault now needs a new man. guy: you still have a buy rating on the stock. will that change as a result of what has transpired? frank: i'm not allowed to say if i will change it. we are still at a buy rating. maybe the next date could be changed. it is operational, if you consider the markets, the chinese markets or south america, i think renault sold 8% this year in the first last months -- in the first months. the operations side is ok. this is not everything.

it depends on what happens in the next days with mr. ghosn. maybe he is tomorrow free from prison. you never know. maybe he has to stay there some more days or for some weeks and it is a problem for the companies. guy: your sense is he is very important. i'm trying to draw a correlation between your buy rating on the stock. frank: the buy rating is from october. how much of that buy rating is based around carlos ghosn's ability to execute the plan he was talking about? -- it is is developed difficult to express it. i thinks carlos ghosn is an important person to bring the evennies closer together, to bring mitsubishi to the company.

unique, nobody can replace. i think the next guy who will is better to bring the alliance to 1.41 company. t, or one poin company. vonnie: right. i think people would have said sergio marchionne was essential to chrysler. now renault is down a percent or 9% to this news. it seems like it might be an opportunity to buy. massive companies like this are not going to collapse in the absence of one key figure. frank: i'm not sure if this is a good opportunity to buy. the share has lost 8% or 10%. maybe tomorrow we would get worst news. you never know what happens,

what happens in japan. you should be cautious, to wait for more news from the company. vonnie: what about the idea that sergio marchionne was also a key figure? can you compare carlos ghosn with sergio marchionne? frank: both are very important figures for the company. this is the past. carlos ghosn worked since the 1990's, he started in 1999 at nissan. almost 20 years. this is the past. you always have good guys in the second row and new faces. vw, a guyt the ,orked there more than 10 years but everybody is to replace. i think renault will have to

look for a new guy. guy: we find ourselves in a situation where we have a company in turmoil and industry and turmoil. the two things are not related but the venn diagram does overlap. the industry is in turmoil and dealing with an ongoing emissions scandal. we also have other things happening. the electrification of the power --ded, 10 this company of can this company afford to have a brief hiatus at a time when so much is happening? frank: maybe you can repeat the question? guy: let me make it briefer. given what is happening in the industry, can run no and nissan -- 10 renault and nissan afford to have a gap at the top of their company given the crucial decisions that need to be made. frank: the gap is only for days and weeks. the company will go on even

without mr. ghosn, if you should stay weeks or months in japan. maybe we would see a new ceo in the next month or the beginning of the next year. each company might get the same problems and gaps to close by other people. i think it is not impossible. i think it is important renaults are made at and not reachable for the next month or whatever. decisions be other made by other important man in the company. schwope, thank you very much for taking the time to speak with us. interesting story. frank joining us from hanover. vonnie: let's check in with bloomberg first word news. here is kailey leinz.

kailey: theresa may is appealing to soldiers to back herb exit plan. -- itys to listen to indicates close economic ties with the european union. meanwhile the european union is developing new rules on foreign investments aimed at china. legislation may come out tomorrow to prevent foreign investment that threatens national security in areas that is energy, transport, and technology. president trump says the u.s. will issue its own report on the killing of saudi journalist jamal khashoggi by tomorrow. the president denies the cia has made a judgment in the matter. reports, themedia cia has concluded that saudi prince mohammed bin salman order jamal khashoggi to be killed. the deadliest fire in california's history has created extremely unhealthy air. the air quality exceeded health standards by 60 times. to bere is expected

extinguished by november 30 but the poor air quality is likely to remain for a while. global news 24 hours a day, on air and @tictoc on twitter, powered by more than 2700 journalists and analysts in over than 120 countries. i am kailey leinz. this is bloomberg. bonnie? -- vonnie? stillan: -- vonnie: ahead, ray dalio. that is coming up. this is bloomberg. ♪

guy: live from london, i'm guy johnson. vonnie: and from new york, i'm vonnie quinn. this is "bloomberg markets." been trying may has to drum up support for her draft brexit deal. she spoke of the confederation of british industry's conference

in london. world is changing fast, our geography is not. europe will always be our most proximate good market and ensuring we have three flow -- free-flowing borders is crucial. we are joined by the cbi's director general. good afternoon. i was listening in on some of the commentary around the cbi today and some of the questions you are being asked. i will paraphrase some of the questions and put them together. i guess my question centers on the cbi support for the brexit that the prime minister has put forward. my question is, is it a good deal, caroline, or is it a new deal brexit? caroline: it is significant progress. what we have seen -- it is a hugely important time for british business.

we are four months away from a potential crash out of the european union. what businesses are saying is we know this would involve compromise. it is not perfect. it is not perfect for business, either. by charting a path to a possible frictionless trade deal in the future, let us bank that progress so we can move on. vonnie: does this mean that money will come back into the u.k. or assist still awaiting period for companies. -- carolyn: my belief is money would be unlocked if we would agree to the deal. we know how many businesses have been holding back on contingency planning. they have been holding back on stock. money into take the massive pressure off a no deal exit. i think she would feel the

benefits from our economy very quickly. does that mean we have uncertainty? guess we do. turnis the opportunity to a seven-page agreement into a 2000 page agreement we need for a transition. what primet about minister may outlined is still problematic for cbi and its members? carolyn: the most problematic thing is it is still uncertain in terms of the final trade deal because we are very clear about what business needs. we need three things. we need frictionless trade for manufacturing sector, we need a good deal for services, and third we must have a say on the rules. we have too big of an economy not to have that. those are the three things that are not yet fixed and they will need to become fixed over the

course of the transition can tell -- over the transition period. guy: there is been some suggestion the transition period should be extended to 2022. i think the prime minister poured cold water on that idea today. with the cbi support that extension, because it would make any transition easier for your members? carolyn: we can see why it is being considered. it is not something businesses leap at. doesransition period involve no say over the rules. we do not want to continue longer than it has to. that mightwo reasons have to continue for business. it prevents the backstop from being needed, the backstop no one wants, that would require changes for business. the second reason is if we wanted to get that trade deal done.

we know trade deals are complicated. they take time. we may need to take more time to complete it. it is not something businesses are asking for. vonnie: if theresa may does face a vote of no conference, how with the cbi feel about that? carolyn: we have to keep remembering where we are in the process of leaving the european union, which is only four months away. one of the things we feel great responsibility is business to do is to inform people about what a no deal brexit would mean for jobs and lives, the impact of shortages, the impact of supply chains being disrupted. we would be concerned if there was any new disruption to the process that would make an accidental no deal more likely. fairbairn,olyn cbi.tor of the

this is bloomberg. ♪

vonnie: we are almost one hour into the u.s. session, checking markets. the s&p 500 lower by almost 1%. that decline is picking up steam. pde the worst performer. adobe lower by 5%. the dow jones down .9%. the nasdaq is down 1.8%. founderp, bridgewater ray dalio is next. he joined us for an exclusive conversation. this is bloomberg. ♪

guy: 29 minutes past the hour. we are getting breaking news related to run no. the fret -- related to renault. the french finance minister's --king up its boss saying

the french government mantra the stability of governance. the french government likes to have a stay -- essay of what happens in large areas of french industry. these are the kinds of comments we should expect from the french government. talking about the stability of governance at renault, no share price reaction. vonnie: mitsubishi also looking at the situation and coming to some kind of decision which we will keep you updated on. apple on the decline again as well. according to the wall street journal, apple is coming production orders for the three iphone models in unveiled in september. a reporter for bloomberg news joins us now. another 3% decline. how much does the market put store in these stories? we do not know what the numbers are going to be. maybe the numbers will not be a strong as we thought they would

be. >> you can see it in the price reaction. apple has been lower for seven weeks. that is longest decline for apple since 2012. it is not just apple. we continue to see tech lead the way lower. it is not just apple anymore. of course it is suppliers, last heard hinting at what we heard from the wall street journal. you are seeing's -- you're seeing tech at large not able to keep pace with the s&p 500 as it has been rebounding. vonnie: what is causing it? we have known about the supply issues for a while. what has adobe lower? sarah: there are a lot of different reasons being floated. obviously you have the idea of smartphone demand. you're still dealing with the trade for -- with a trade war between the u.s. and china. we had comments from vice president mike pence saying the

u.s. is not in a rush to back down. they will not until china comes to the front with good concessions. at the same time dealing with rising interest rates. different reasons that play. it is not anyone. it is just a conglomeration of many reasons that different investors have to contend with. vonnie: how much of a drop could we see in the nasdaq or the nasdaq 100 the four becomes a self-fulfilling prophecy and the drop leads to a further decline? recently in san francisco meeting with angel investors and entrepreneurs and they said for them they are starting to think about this and wonder about this and terms of what this means for their businesses, how they go about investing, how much angel investors want to put into the start up companies. many did say that until it reaches a point where we are in bear market territory, then in a way people will still keep going , especially in the ipo market. i spoke with advisers there who

say make sense to be ready. until we hit that point where we are down 20%, you will continue to see that market turn. it is a holiday week in the united states and investors are looking for anything to trade on. sarah: absolutely. i have not had a chance to look at the volume today, we see this in every single holiday trading week, volume is lighter. that also means you can see outside movement, either which way. i have seen a couple notes out from traders and investors warning their clients to pay attention to this. that means if you have a single headline on lighter volume, we might see spikes and we might see higher volatility. vonnie: thanks to sarah. we want to turn to the bloomberg opinions very victuals holding -- live from our bloomberg world headquarters in new york. is, but who ray dalio

let me just give you a quick version of his background. he is the founder and cochairman and co-cio of bridgewater associates, the world's largest over $150 managing billion in assets for institutional clients. according to forbes, bridgewater has made more money for their clients than any other fund in history. he is the author of the new york times best-selling book principles for life and work, and most recently his new book is "principles of big debt crises." thank you for being our first guest on masters in business live. let's start with the reboot of bridgewater, which you describe in great detail in the first book, which came about after a not so great 1982. you describe it as disastrous. what happened in 1982?

ray: formed bridgwater 1975. 1982 is seven years later. >> that is the reboot. to 1980, iin 1979 calculated that american banks would land way more money to emerging countries than those countries would pay back. it was about 250% of their bank capital. we were going to have a banking crisis and i thought that was going to happen. i got a lot of attention for that. august of 1982, mexico defaulted and there was a sequence of other defaults and there was a debt crisis. i thought that was going to cause an economic crisis. i cannot have been more wrong. that was the exact bottom of the stock market, when mexico defaulted. timeeived attention at the . i was on "wall street week" and

asked to testify to congress and i was wrong. i had eight people who work for me. i had to let them all go. i lost money for me, i lost money for clients. i'd to borrow $40,000 from my dad because i do not have enough money to take care of my family at that point. that was painful. it was the most valuable player and that happened in my life. certainly one of those. it made my approach -- it changed my approach to thinking. it made me think, how do i know i am right? how do i take risks and not go through these mistakes? it made me change a lot. i wanted to find the smartest people i could who disagreed with me. i wanted to build a meritocracy in which independent thinkers would challenge each other and i wanted to deal with risk. how do i maintain the returns

but diversified? it was from that point that everything started to change. that is my terrible experience, and that is one of those lessons . there was a book my son gave me in 2014, joseph campbell, the hero with a thousand faces, and he describes how that crashing occurs and that changes. you have a metamorphosis. the approach to learning from mistakes, painful mistakes and making the most out of them and writing principles down, recipes for how do you deal with the circumstances. learn the lesson, right the principles down. this is the thing i would recommend everybody. write them down. by being able to write them down clearly enough, they could be expressed in what were then algorithmstions, now that allow me to make decisions and us to make decisions and a powerful way. that experience was the turning

point. .> that is very abstract i want to describe some of the ideas and products that came out of that post 1982. you describe in your early history some of the products that you had a role in the tips, inflation protected treasury bonds. the entire concept of risk very humble and saying you had only a little bit to do with the chinese stock market creation. i know you consulted with very senior people there and helped that come about. what i think is the least known thing about you, but the most fascinating, you helped the engineer chicken mcnuggets. explain that to us, because it is intriguing. ray: i traded commodities back then. that was my big thing. chickend how to make and how much feed, what a check

cost, howat a chick soybeans were grown, and the mechanics. i liked the mechanical thing. at the time, mcdonald's was a client of mine. they wanted to come out with this chicken mcnugget. it was very volatile, prices were volatile and they were worried about whether they could get stable menu prices or they would have the volatility in that would be disrupted. i had a chicken processing producer, the largest at the time, as a client. i could engineer the ability to walk in the feet -- to lock in the feed prices. the cost of a chick is not much relative to the cost of the feed , and you have futures contract on that. i was able to work a deal so the chicken producer could get the mcdonald's contract, and

mcdonald's began a stable price by engineering how they could do the hedge to be able to do that. that is what i did. the word engineering comes up a lot for a person who is not an engineer. i was reminded of that in one of the first longform videos you did, how the economic machine works. first, what is the engineering background for the overall economy and what motivated you to put that together in a video and release it to the world? ray: the one thing i learned over the years is everything -- everything that happens has a reason it happened. cause effect relationships. these things happen over and over again. whenever i got surprised by something, it was because of something that did not happen in my lifetime, but it happened, like these financial crisis is. what i did was i went back and started to see that if you start

to see everything as happening over and over again and then you study the cause/effect mechanics you learn how reality works, and then you can write your principles for dealing with reality, which are the recipes for making good decisions. to me, history has shown the same things happen over and over again with the same cause and effect relationships. that debt book you are referring to was a good example. if we do not spend time understanding the mechanics and the cause/effect relationships, we just argue with each other about what should be done, it is like to doctors who have not spent time understanding and agreeing how the body works arguing about what should be done for the body. on howson i did a video the economic machine works and the reason i did the book is to put on the table what i think

those cause/effect relationships are so we can understand the timeless and universal mechanics behind it. that is been invaluable to me. once i understand the mechanics, and we can test it, we contested in all time frames, and all countries, we can understand it, and then with that framework we know how to do with it. nowadays, being able to deal with it with algorithms and technology means you can deal with it all over the world. it has been a powerful force. it has evolved from those experiences. i remember the first time i was clicking on the floor of the new york stock exchange in 1971. i was just between college and going to business school. the stock -- we have a dollar crisis. we cannot pay for goods in europe. no one is excepting dollars. 15, richard nixon gets on the television and basically

says we are severing the connection between the dollar and gold. back then money was a check. a check and a check book has no value, it is only what the money is that has value. , it wouldet you money get you gold. was a breakdown. i remember thinking when i was going to walk into monday morning to the stock exchange this is a big crisis. i thought the stark market would fall. the stock market went through the roof. i realized, i said did you have currency breakdowns before? and then i studied currency breakdowns. why, when you devalue the currency it is bullish and how that works that i do not understand. it is that perspective about mechanics. can we agree on the mechanics of how it works? once you do that, then you know

how to deal with it? big debt we talk about crisis, let's talk about the book. it became a new york times bestseller and you kind of went on a -- not quite a world tour on the book. you said that experience was educational. what to do learn speaking to people about the book principles? being above liked the radar. >> you do not do a lot of media, historically. ray: although you are beginning life which phase of is a transition from my second phase to my third phase. the way i look at it is in the first phase of life, one is dependent on others, one is learning, one is a student. in the second phase of life, one

is working, others are dependent on them, and one is joined to be successful. as you get to my stage in life, which is a transition from the second of third, the joy is no longer in being successful as to pass along what you have learned that is help you to be successful. the joy is in seeing other people be successful. because these principles have been written down over a long time and they are the recipes, i wanted to pass those along. that is what i'm in the process of doing. the answer your question in terms of the surprises, i thought that was going to be a very uncomfortable experience. i thought the communications would be bad. i have found such a joy in the interactions i have had with people in the public and so on. it has been a pleasurable experience, a sense of relationships, and i think

people are now looking for principles. i want to emphasize, forget my principles, they do not have to be my principles, but i think everybody would benefit enormously by being crystal clear about their principles. i want to pass this thing along. if every time you were , atuntering your situation that moment or right after, you write down the criterion for making your decisions in words, that allows you to communicate with others, it allows you to clarify your decision-making, and you can take in from others what the best criteria is for those circumstances in the future. that is invaluable. in all your relationships with people, people will know what your principles are, how you interact with them and why. then you go beyond that to convert those into equations and help them make the decision. i think that is a powerful

thing. i want to pass along line, but i also wanted to pass along the importance of other people doing that, there are two things. now i'm working on economic investment principles. >> they'll be the third book in the series? ray: the middle one was sort of an accident. >> we will get to the middle one in a moment. , iore we leave principles want to ask about what i think is the most interesting approach you bring to managing a firm, which you call being radically open-minded, having radical transparency and bringing about thoughtful disagreement. tell me how that developed. that does not seem to be the way most of corporate america operates. ray: that is our edge. >> your images thoughtful disagreement? ray: let me give you one sentence. i want an ideal meritocracy -- i

want the best ideas to win. >> as opposed to where it comes from. ray: i just want the best decisions to be made and what i want is to have meaningful work and meaningful relationships. meaningful work meeting you are on a mission together, and the relationships are meaningful and high-quality. they are a reward in and of themselves and they make an organization more effective. meritocracy, which the goals are meaningful work in meaningful relationships, through radical truthfulness and radical transparency. radical truthfulness means they what you're thinking and we will stay the same, let's get away from the behind-the-scenes and the politics, and radical transparency means most people can see most everything. independent thinking. that builds trust. ofcuts through the notion

politics and bureaucracy. everybody is able to see most things -- by everybody will see most things, you build trust and you are dealing with things without the blur of hiding stuff. in the investment business it is especially important. i think for entrepreneurs it is important because you have to have the independent thinking. in the market, the markets discount the consensus. whatever the consensus is is in the price. in order to be successful in the markets, you have to think differently from the consensus. you have to be right. in order to have that, you have to have independent thinkers. to have those differences, if you can work that through through thoughtful disagreement, you have the art of thoughtful disagreement. if you work that through, you raise your probabilities of getting at the best answer.

that has been a powerful thing. it also builds trust and builds better relationships. trust comes from operating an with politics behind the scenes. they talked behind each other's backs. that has been a big deal for us >>. that is your edge. let's go forward to the new book. ."avigating big debt crises you mentioned you decided to write that because folks asked you to put it together -- ben otherke, tim geithner, people. i like the way the book is assembled. it is broken into three parts. the template for what the debt cycles look like, then you use detailed cases, the great financial crisis, the great depression, and the weimer republic, and then you put together 48 case studies from the past century. let's start with the first one,

the template. what makes all of these very different crises follow the same mechanical cycle? how is that possible? ray: everything has these cause effect relationships. in a nutshell, i will try to make it simple, there is productivity over a period of time, our living standards rise because we learn how to do things better. the output per man hour worked increases and that moves -- it will go up and down. by and large, it is not what causes volatility. around that, we have two debt cycles. we have a short-term, which we understand, because that is the business cycle. you're in a recession, central banks ease monetary policy, they change the relationship between short-term interest rates and long-term interest rates, and then you have debt growth.

credit is spending power. when you extend credit, you are extending spending power, and that is good for the economy when the credit can be paid back. what it does is pushes asset prices up while levels of debt continue to increase. at that part of the cycle, people and everybody conservative about that, and it pays back. , youen you say payback mean the borrowers have the ability to service that debt even as asset prices rise? ray: that is right and everybody wins and that is good credit growth. later in the cycle, it is a self reinforcing cycle. as asset prices go up, you have more collateral, people are more confident, they believe asset prices will continue to rise, they become less careful in terms of that kind of lending. they extrapolate that into the future.

and then as -- there is the shadow banking system. there is always the shadow banking system. >> not just 2008-2009? ray: all the time. there is a shadow banking system now. there are the banks regulating control, and then outside of those banks are other forms of lending. capital markets and so on. it can be online, it can be in different forms. there is a pressure to develop that outside of the systems of shadow banking. the more regulated, controlled one, does not make as much money. by being at the periphery, you can use higher amounts of leverage, you can do certain things. you can develop a shadow banking system which is not regulated and investors want to go to because they will give you a higher return. think about how the money markets funds develop.

that develops outside. it has become so self reinforcing because everybody makes money at it and they believe it. when things go up, everybody thinks things will go up. >> less regulation, more risk, better return. then what happens? ray: all of that demand in liquidity causing rates to come down, liquidity to go out. like we see in this cycle. the last cycle we brought interest rates down to zero, that was not good enough, so the central banks bought $15 trillion of assets and pushed the asset prices up, pushed liquidity into the system. asset prices go up and people extrapolate. as you get to later in the cycle, when there is more debt and you know you're coming closer to the end of the cycle, there is more but extrapolating in the market prices.

if you look at the discounted growth rates late in the cycle, they become high and are difficult to meet, and then you get the tightening of monetary policy. the tightening of monetary policy has its affect, and then it becomes a self reinforcing effect. that is the normal business cycle and the normal debt cycle. debt is credit and credit is buying power. the economy runs on that. then you have this longer-term debt cycle, which is the accumulation of those other cycles. the world wants to be leveraged long. they want everything to go up. we all do. central banks, better times. assets go up, businesses and activity and a strong desire to push credit. starts totions it encounter is when you get close to zero interest rates. that changes the game. when you have -- then you need to print money and buy assets.

that happened in 1932. 1929 to 1932, interest rates at zero, the central banks need to buy assets, they buy assets. very similar situation we have been in. 2008you carry that from and then you come into a year and a year and a half ago we start to tighten the monetary policy, we pull that in, we have higher rates of debt growth. that thing goes on all over in all countries, that same basic dynamic. there is a lot more on that in the book. >> let me pull you forward to today. given that these things are cyclical, they repeat and look similar, what parallels would you draw from history to today? what era does today most remind you of? what is the most intriguing aspect of the current setup? ray: the most recent pinto --

analogousecent period to this is the late 1930's. why do i say that? we are well along in the business cycle, the short-term cycle. we are in the seventh and eighth inning of that. central banks are tightening policy. , we have, then because of the printing of money and technologies and other reasons, we have a greater amount of polarity, political polarity. i think this is an important issue. that political polarity causes populism around the world, and other worlds -- in other words, a strong individual to come in and take control. the word populism and developed countries was not widely used until you go back to the 1930's. now it is common.

we are also late in the longer-term debt cycle, meaning if you were to turn down, if the economy was to turn down, the ability to deal with that lowering interest rates is very limited, and the ability to deal with that with quantitative easing is very limited for a variety of reasons. it is very much like the late 1930's. you cannot find a time in which both of those circumstances exist -- populism together with that -- with wealth gaps and so on. we also have a situation that is similar in that we have rising power in the form of china. >> let's talk about that. in the 1930's you at italy and japan and germany rising to challenge the existing powers. how parallel is a growing china today to that era? ray: i think it is not only in analogous is not only

to that era, but there is a concept called a thucydides trap , which an excellent book all destined for war he goes through. he is dealing with the china relationship. another excellent book is paul kennedy's the rise and decline of great powers. if you study history, i've made a point now to study history over the last 500 years carefully. what you see is that in the last 500 years there have been 16 comeswhen a great power to challenge an existing power or a rising power. like you say, in germany, or japan, that was the nature of that beast. that means there are rivalries. a trade more, a comparable power

creates an issue. >> 16 previous examples of a rising power. ray: 12 of which led to shooting wars. i'm not saying we will get into a shooting war, but i am saying history has shown that when you have wars, after a war you have a dominant power and periods of peace. after world war ii, the united states was powerful both economically and it had a monopoly on nuclear power. power as a result of that , the united nations is a new york, the world bank and imf are in washington, d.c. because it determined that. in history, when you have the rising power to challenge the existing power, you have elements of conflict. i don't want to overdo this, but i am saying we are entering a